2006 Commercial Real Estate Report

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WaterlooCedar Falls

Des Moines Cedar Rapids

Iowa CityCoralville

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The information contained in this report is believed to be reliable, but not guaranteed. Reproduction of this publication, in whole or in part, is prohibited without permission of NAI Iowa Realty Commercial.

NAI Iowa Realty Commercial is pleased to present our Eighth Annual Commercial Real Estate Report. The report

summarizes results from ongoing surveys of the offi ce, warehouse, retail and investment submarkets. We gather facts and

fi gures on over 1,300 properties which collectively represent over 40 million square feet. We then apply our own analysis to

the results of the research so that we may accurately examine the area’s activity and better predict its future performance.

Making the right facilities or investment decision depends on a number of variables. We believe that a comprehensive

analysis is an important element in advising our clients so that they make the wisest and most profi table choices.

A special thank you is extended to all who respond to our requests for information each year and for the efforts of our

summer intern, Craig Byers, a commercial real estate and construction management major at the University of Denver.

Scott G. Byers, CCIM, SIOR

President

NAI Iowa Realty Commercial

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1

Investment RecapIn �005 investment real estate benefi ted from improving

market fundamentals and continuing infatuation with brick

and mortar. Huge amounts of money continued to seek

income producing real estate as a preferred component

of an investment portfolio, in part due to continued

disappointment over stock market returns. Lenders

and investors continued to pour money into property

investments. Liberal bank underwriting – high loan to

values, low debt service coverage, extended fi xed rates and

little or no reserves – permitted buyers to leverage their

investments and minimize their risk. The collective outcome

of this hyperactivity was some signifi cant appreciation in

values. Owners that availed themselves of this pricing surge

and chose to sell were able to rack up signifi cant gains.

These gains are included in the various statistical analyses

of real estate performance, which further moves the dial

favorably in comparison with other investment alternatives.

The NCREIF Property Index benchmarks the investment

performance of properties owned by institutional investors,

such as pension funds. It reported an annualized return of

18.7�% for all property categories, though the Midwest was

less robust at 13.41%. The national returns were consistent

throughout the apartment (19.68%), industrial (18.98%),

retail (18.66%) and offi ce (18.�0%) sections.

Locally, the best indicator of investment performance is the

trend line in cap rates paid by Buyers. The lower the cap rate

(basically the unleveraged rate of return a buyer will earn on

their purchase) that Buyers are willing to accept,

the higher the price a Seller can command.

Since the capital gains profi ts made by Sellers so

dramatically impacts investment performance, a

cap rate analysis is revealing.

Cap Rate Examples —

Retail: Lindale Crossing (retail project anchored by Bed,

Bath & Beyond) sold for a cap rate of 11 in �003, resells at a

8.5 cap in �006, a change that translated into a $�,600,000

resale profi t.

Office: Two single tenant (Rockwell Collins) properties, one

on Council Street and one on North River Boulevard, sell for

sub 8 caps.

Industrial: Newly constructed Amana Maytag distribution

facility in North Liberty is already fl ipped by developer, First

Industrial Trust, at a 7 cap, one year after being developed at

an 8 cap.

Multi-Family: Woodcrest Apartments on Blairs Ferry Road

sell at a 7.5 cap.

Valu

es | Trends | O

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Shadowood Apartments

2005 CAP RATE RANKS

2005 2005 Low 2005 High 2005 Avg.

Rank Property Type (%) (%) (%)

1 Suburban Multi Family 5 9 6.74

2 Urban Multi Family 5 10 7.03

3 Regional Mall 5.8 10 7.28

4 Community Mall 6.3 9.5 7.59

5 Neighborhood Strip 6.3 10.5 7.69

6 CBD Office 5.5 11 8

7 Office/Warehouse 6 10.5 8.01

8 Suburban Office 6.3 9.8 8.02

9 Bulk 6.3 11 8.13

10 R&D 6 10.5 8.41

11 Manufacturing 7 11 8.66

12 CBD Lodging 7.5 12 9.33

13 Airport Lodging 8 12 9.56

14 Suburban Lodging 8 11.5 9.53

Source: Integra Realty Resources, Inc.

�investment

Investment Forecast

�006 will remain a sellers market, and yet investors continue to

hang on to their core properties (locked in credit tenants with

good income streams). Consequently, particularly

in the relatively restricted Eastern Iowa markets,

buyers will struggle to find acquisitions that

make sense. The following sections of this

report provide a more detailed analysis of each

submarket’s investment potential, but as a

snapshot, we offer the following:

Buy: Industrial,land,apartmentswithcondominiumconversionpotential

The vacancy continues to evaporate in the

industrial sector, giving Landlords a reliable

income stream and pricing power. Land prices

continue to escalate, particularly along I-380.

Residential development ground has steadily

appreciated as well, though a cooling off of the

housing cycle may temper future price increases.

Higher home prices, rising mortgage rates,

satisfactory job growth and higher single-family construction

costs all bode well for apartments, particularly those that can

eventually be converted to condos.

Sell: Well-tenantedretail,moderateincomeapartments,leasedupB&Csuburbanofficebuildings

Retail appreciation will be hard to come by at current

stratospheric pricing levels. Additionally, the discount super

centers will continue to erode the underpinnings of smaller

retailers. Lastly, we may be approaching a saturation in retail

supply, particularly of strip centers. Apartments that are aging or

susceptible to the continued allure of affordable “first time buyer”

syndrome won’t be worth the headaches.

Smaller B & C office buildings (10,000 square

feet or less) in the suburbs continue to suffer

from slow demand, alternative workplace

strategies and lack of building amenities.

Seek an owner-occupant buyer.

Hold: Highincomeapartments,leasedupCBDoffice

High income apartments that have weathered the tenant exodus

into home ownership remain intriguing, both from potential rent

increases and condo conversion perspectives. Leased up CBD

office buildings presumably will benefit from the next leasing

cycle at higher rates, though owners run the risk of fickle tenant

demand for downtown space.

Overall, modest property cash flow improvements can be

expected in most property sectors. Quoting from the �006

Emerging Trends in Real Estate report issued by the Urban Land

Institute and Price Waterhouse Coopers, “The consensus forecast

suggests that real estate can maintain a relative edge over

stocks and bonds. Expect capital to begin backing off during

the second half of �006 as a touch of buyer fatigue finally sets in

over interest rate advances, possible cap rate erosion and even

heightened development.

AMONG RESPONDENTS WHO SEE A PRICING BUBBLE IN COMMERCIAL REAL ESTATE, A

LARGE MAJORITY SAY THE BUBBLE IS MOST PRONOUNCED IN THE APARTMENT SECTOR.

6%

13%

15%

20%

23%

29%

26%

26%

30%

63%

17%

18%

0% 20% 40% 60% 80%

Other

Mixed-use

Hotel

Industrial

Retail - urban/main street

Undeveloped land

Office - suburban

Office - downtown

Retail - lifestyle/power center

Retail - mall

Retail - grocery/drug anchored center

Apartment

What do the Financial Markets Tell Us?

Total return percent

MARKET INDICIES AS OF 1-YEAR 3-YEAR 5-YEAR 10-YEAR

3Q 05

Consumer price index 3.21% 3.42% 2.76% 2.49% 2.52%

10-year Treasury bond* 4.19% 4.20% 4.15% 4.46% 5.20%

Dow Jones industrial average -0.34% 7.23% 14.19% 1.91% 10.33%

Nasdaq composite -1.09% 13.44% 22.45% -10.14% 7.50%

NYSE composite 5.28% 16.17% 17.46% 1.72% 8.71%

S&P 500 2.77% 12.25% 16.71% -1.49% 9.48%

NCREIF index 13.93% 19.25% 13.19% 11.06% 11.68%

NAREIT index 6.94% 22.63% 24.90% 19.43% 14.24%

*Based on average end-of-month T-bond rates

Sources: Morningstar, NCREIF, NAREIT

3

CBD Offi ce RecapThe most recent chapter in the CBD takes a few pages out of

an old playbook. Consider this quote from Jane Jacobs’ 1961

book The Death and Life of Great American Cities; “Cities need

old buildings so badly it is probably impossible for vigorous

streets and districts to grow without them…for really new

ideas of any kind – no matter how ultimately profi table or

otherwise successful some of them might prove to be – there

is no leeway for such chancy trial, error and experimentation

in the high-overhead economy of new construction. Old ideas

can sometimes use new buildings. New ideas must use old

buildings.”

The most visible manifestation of this approach is the retail

incubator on �nd Avenue, although adaptive reuse of existing

structures was found throughout the downtown district. OPN’s

dramatic overhaul of the fi ve year vacant Hutchinson building

and the architectural fi rm’s announced relocation from the

Great America Building is an eye-opener. Similarly, architect-

cum-entrepreneur-cum-landlord Steve Emerson is completely

gutting the historic Paramount Building to convert it into the

retro-themed offi ce location of choice. Midway through the

project, the building has pre-lease commitments for 50% of

the 44,000 square feet total available space. Emboldened by

this success, Emerson has placed the 30,000 square foot Palmer

Building on the corner of �nd Avenue and 5th Street SE, formerly

occupied by MCI, under contract. Residential developers are

part of the bandwagon as construction has begun in earnest on

the much publicized 46 unit Water Tower Place condominiums.

Drawing on that project’s apparent success, the Smulekoff

interests announced plans to convert its four-story downtown

warehouse into eighteen sizable loft condominiums.

The result of this renovation activity is refl ected in improved

occupancy percentages, despite the dearth of any new large

footprint tenants. Though vacancies still remain uncomfortably

high in downtown Cedar Rapids – not unlike most CBD’s across

the country – the incremental improvement is a refl ection of

start up businesses and entrepreneurs availing themselves of the

favorable rents available, particularly in the Class B and Class C

offi ce buildings.

Vacancies dropped below �0%, ending the year at 18%. Class A

offi ce space was 90% occupied, though that represented some

slippage over the previous year. Class A rents also regressed

albeit modestly, from $11.40 to $11.�5. Class B space rents

averaged $9.80, although vacancy in class B still topped �0%.

Class C space again registered little change at $7.3� per square

foot, although occupancy improved to 8�%.

Defi nitions —

ClassASpace: Prominent buildings with excellent location,

high-quality tenants and high-quality fi nish, which are well-

maintained and professionally managed. Class A buildings are

usually new, but can be older buildings that are competitive with

new buildings. Alliant Tower, Great America, MCI Tower, Town

Centre.

ClassBSpace: Buildings having good location, professional

management and fairly high-quality construction and tenancy.

Class B buildings may show slight functional or economic

obsolescence. APAC, Armstrong Centre, True North, US Bank, etc.

ClassCSpace: Older buildings having functional or economic

obsolescence and/or more transient tenancies. Many Class C

buildings have had upgrades to fi nishes and are distinguished

from Class B primarily by age and layout. Dows Building, Iowa

Building, Guaranty Bank, etc.

TripleNet(NNN)Lease: One in which the tenant assumes all

operating expenses of the lease premises, except roof and

structural repairs.

OperatingExpenses: Outlays pertaining to real estate operation,

exclusive of tenant’s on-going business costs. Includes items

such as real estate taxes, insurance maintenance and repair,

utilities and janitorial services.

$11.25$9.80

$7.32

0

2

4

6

8

10

12

Class A Class B Class C

Average Rents - CBD

| Offic

e |

4

CBD Forecast�006 is an important, possibly even a watershed year for the

CBD. By �007, downtown property owners will decide whether

to continue to self impose a twenty year old tax (which is in

addition to regular city and county taxes; and is known as SSMID)

on their properties to help fund improvements to the district.

The property owners will be closely monitoring the support,

both fi nancial and otherwise, that they can expect from the new

city council. If the council places importance on the viability of

the downtown and budgets accordingly, the owners will follow

suit and continue the tax. Lack of council support will likely

doom the program. �006 also will witness the staying power of

the many new bar and restaurant venues in the CBD. The cliché

about success breeding success is particularly apt in the food

and entertainment business. Look for offi ce vacancies continuing

to decline as the relative cost of retrofi tted space continues to

be signifi cantly less than new construction in the suburbs. With

increased absorption there typically follows an increase in rental

rates, but that will not be the case in

the CBD for �006; rates will remain fl at.

However, if momentum can continue

in a positive direction, rates will

eventually follow.

Signifi cant Events — CBD• Alliant Tower sells for $�8,000,000 - $106 per square foot

• Despite construction delay until �009, MidAmerican Energy

building is razed to make way for Federal Courthouse

• River Place apartments begin conversion to condos

• Grant Wood exhibition a colossal success

• Great Furniture Mart positioned for re-development

• Diversity Focus Group to headquarter downtown

• MCI/Verizon merger completed with no adverse ramifi cation

• New and expanded medical buildings dot 8th Avenue

• Restaurants, bars and coffee shops continue to sprout

• Holmes Murphy occupies 9,�00 SF in CRBT building.

Suburban Offi ce RecapReal estate analysis and forecasting is to an extent, a debatable

and subjective exercise. Nevertheless, there can be no debate

that the suburban offi ce market has witnessed the most

signifi cant positive accomplishment of the various submarkets

that are the subject of this report. Using baseball parlance, if the

growth within the CBD was the result of some bunts and scratch

singles, the suburban offi ce market was blasting triples and

home runs. Rockwell Collins was Ruthian in its impact, having

barely unpacked the boxes in its new 100,000 square foot facility

on Cimmie Avenue NE before announcing another 100,000

SF building to be built by the Ryan Companies on Rockwell’s

main campus. Extending the baseball analogy – probably

one sentence too many – was the grand slam home run that

nobody saw. When McLeod USA and Aegon announced their

building swap, the suburban offi ce market was rewarded with

two major victories: 1) the 317,000 square foot former McLeod

headquarters did not “go dark” and fl ood the market with excess

space. Quite the contrary. Aegon

offi cials now indicate that virtually

the entire structure is slated to

house their employees leaving little

if any vacant space and �) McLeod

USA remains a major tenant with

nearly 100,000 square feet in their

new Boyson Road headquarters; the

former home of Parsons Technology.

CBD Concentration of Space(Other* - recreational, church, museum, etc.)

Retail

13%

Industrial

4%

Warehouse

7%

Other*

4%

Office

72%

Office Retail Industrial Warehouse Other

8th Avenue Medical Building

offi ce

5

The other major story of the suburban offi ce market emanated

from North Liberty and Coralville. The corridor concept has been

embraced by the real estate community for the last three years

or more, and North Liberty in particular has become a very active

suburban submarket. Companies like Compleware, Revenue

Cycle Partners and National Genecular Institute, as well as Mercy

Medical Center, Liberty and Corridor State Banks have or will

account for over 40,000 square feet of positive net absorption.

Heartland Express’s announced move will further boost these

numbers.

Occupancy levels ended the year at 86%; ie. a 14% vacancy factor.

The NE quadrant, composing over 70% of the available supply of

space, currently has a vacancy level of 1�.6%, which is healthier

than its sister quadrants and the nation. Weighted average rents

enter �006 at $10.�5 per square foot, a rather sobering �5%

below national average.

Suburban Offi ce ForecastAlthough the offi ce market is healthier than it has been in a long

time, the sector still faces headwinds. It still remains more of a

tenant market, despite shrinking vacancies. Development activity

bears watching as it has been basically dormant for the last fi ve

years. The offi ce condominium phenomenon that has captured

developers fancy in other Midwest markets will remain less of a

factor in Eastern Iowa. Speculative building, if any, will amount to

less than 30,000 square feet, centered NE and in Hiawatha.

Signifi cant Events — Suburban Offi ce• Hall and Hall moves from NE Cedar Rapids to new ��,000

square foot offi ces in Hiawatha

• Former CMF&Z building goes from 90% vacant to 90% full

• McLeod headquarters sells to Aegon for $85.00 per square foot

• Positive net absorption tops 150,000 square feet, largely due to

Rockwell Collins continued growth.

Suburban Office Space Concentration

5%

21%

1%

73%

SE SW NW NE

Rockwell Cimmie Avenue

Rockwell Intertrade

offi ce

6

Retail RecapRetail once again defi ed predictions that it had reached the

end of its reign as the most active commercial sector. Retail

properties continued to enjoy substantial gains in property

valuations during the last three years, with one-year appreciation

returns for NCREIF’s index of retail properties reaching 6.38

percent, 1�.54 percent and 14.30 percent in the third-quarters

of �003, �004 and �005 respectively. At the same time, cap rates

have fallen from 8.3 percent to 6.6 percent.

Translation…the same property with a net

operating income of $100,000 that sold for

$1,�00,000 in �003, will now sell for over

$1,500,000. The strength in valuation is, of

course, directly related to continued high

occupancies. Nationally the retail vacancy

rate rested at just 7% entering �006, whereas

locally the vacancies were quite comparable

at 7.5%, net of Westdale Mall. And even

Westdale enjoyed a signifi cant increase in

occupancy, thanks to the addition of the

1�0,000 square foot Steve & Barry’s.

The NE quadrant continued to benefi t from

95%+ occupancy, as well as substantially

higher rents than any other quadrant with

an average of $11.3� per square foot. The

SE and SW quadrants reported rents in the

$8.50 range, whereas the CBD and Marion submarkets came

in at $7.50 per square foot. The submarket with the highest

retail vacancy was easily the CBD at 19%; no other quadrant

registered in double digits. The number of sale transactions for

retail properties slowed to a virtual standstill, due at least in part

to local buyer reluctance to pay sub 7% cap rate prices. One sale

of note was Lindale Crossing. The seller, a Chicago investor who

purchased the property approximately three years earlier for

$6,�00,000, resold for $8,800,000; over $�00 per square foot!

If the number of properties being sold took a year off, the

number of properties being built most certainly did not. The big

boys continued to fl ex their muscles, with Wal-Mart and Hy-Vee

recently opening new stores that totaled over �50,000 square

feet. Both companies have on-going projects in the pipeline,

$10.24

$8.66$8.41

$8.50

$9.92

$10.10$6.54

$8.50

$6.05

$10.49$8.46$9.02

$12.37$10.64

$11.38

$11.32

$0.00 $5.00 $10.00 $15.00

SW

SE

NW

NE

Qu

ad

ran

t

Retail Average Rents Comparison

2005

2004

2003

2002

Edgewood Hy-Vee

Marion Super Wal-Mart

Gordmans

retail

7

Wal-Mart in Anamosa and Hy-Vee on Wilson Avenue, as well as

new Hy-Vee Drugstores. Lowes continues to move forward, as

does the �00,000 square foot lifestyle/power center known as

Marketplace on First, across from Lindale Mall. Additionally, there

are a half-dozen new higher end strip centers currently under

construction, adding another 100,000 square feet of store space

to the mix. Boyson Road (from C Avenue to Hiawatha) is the

primary gateway to three of the projects, while Edgewood Road

– both north of the Cedar River and south of it – is the address of

four more. The developers engaged in these projects are familiar

names: Hunter Companies, Ambrose, Byers, Drown, Ahmann,

Pfeiler, Butschi and others.

Retail ForecastThe retail real estate investor reads and sees it everywhere…

“Sell now. How much higher can prices get?”—Price Waterhouse Coopers

“We expect a fi rst-quarter slowdown in retail”—John Bucksbaum, CEO of General Growth

“Do not expect the level of realized returns seen in the

past several years” —CCIM Institute

“Any number of factors, including fuel prices, could

diminish consumer demand over the next few years, and

subsequently shape the strength of the retail sector”—National Real Estate Investor/Marcus & Millichap

Certainly the drumbeat of the national trade publications

suggests that retail investors should consider heading to

the sidelines. However, the local view isn’t so clear cut. Job

formation continues to strengthen, and even higher fuel

prices portend in-migration from rural areas. As such, resilient

consumer demand should help bolster the sector. However, rent

rates in Linn County have remained static for nearly three years, a

result of the continuing new supply of store space. Don’t expect

�006 to change that dynamic.

The new strip retail centers will command rents in the

$14.00 triple net range. Big boxes such as Gordmans and

Dick’s Sporting Goods will sport rents in the $11.00 range.

Meanwhile, secondary locations and/or older properties will

have to compete on a price basis, anywhere from $6.00 to

$9.00 per square foot.

New development will be notably more restrained in the

ensuing 1� months, although Johnson County will continue

on a blistering pace for awhile. The modest new

construction activity that does occur in Linn County

will be in familiar locales, although Furniture Row

is rumored to be planning a relocation next to the

Highway 100 Menards. Westdale Mall will continue

to muddle along, and new restaurants will continue

to tempt we Iowans (not wee Iowans).

| Re

tail |

Do you believe cap rates for retail properties will increase or

decrease over the next 24 months?

No answer

8%

Decrease

17%

No Change

14%

Increase

61%

To what extent do you feel the following issues will impact the

retail investment market?

22%

17%

19%

31%

34%

36%

38%

40%

44%

50%

0% 20% 40% 60%

None of the above/no answer

New Federal Reserve chairman

Changes in political party control

TIC rules

Personal/corporate tax code change

Increase in stock market valuation

Residential housing bubble

Demographic changes in population

1031 tax code change

Overdevelopment

Source: Reza Investment Group

Source: Reza Investment Group

8

Industrial RecapThe industrial sector delivered above average performance

throughout Eastern Iowa all along the I-380 corridor from Cedar

Falls south through Iowa City. Buoyed by the continued strength

in the food sector – think Quaker Oats and General Mills –

coupled with Proctor and Gamble’s remarkable run, and you

begin to fi ll up the space that remains available. According

to some estimates,

Proctor and Gamble

and Quaker Oats

combine to occupy over

3,000,000 square feet of

warehouse space in Linn

and Johnson counties.

Since some of that space

had been built speculatively

or had gone vacant from

previous tenant moves,

the choices remaining for

smaller tenants are reduced.

Less vacancy translates into

higher rents and smiling

landlords. Warehouse

rents in the NE quadrant

surpassed the $4.00 per square foot mark for the fi rst time in

three years, averaging $4.�8. Vacancy rates dropped to below 5%,

both NE and SW. Warehouse rents SW stayed at $3.77, exactly the

same as the previous year.

Industrial ForecastIndustrial/warehouse real estate should enjoy a very solid year,

marked by continued strong absorption, occupancy rates in

the 95% range and positive rental growth of 3% to 5%. In the

second half of �005, there was positive net absorption nationally

of well over 100 million square feet, the strongest performance

in the last 10 years. National occupancy rose 50 basis points, a

very signifi cant improvement. Companies nationally, regionally

and locally are expanding facilities, building new ones or staying

in existing space longer.

Interest in industrial land

on the south side of Cedar

Rapids is stronger than it’s

been in years. This revved

up demand will be diffi cult

to satisfy in the immediate

term. There is virtually no

industrially zoned ground

that is shovel-ready along

I-380 in Linn County.

Furthermore, infrastructure

defi ciencies could further

limit growth, specifi cally

the utility services and

roadbeds on the two major

East-West arterials south

of Highway 30; those being 60th and 76th Avenues. The city will

also need to address an increase in the sewer capacity south of

ADM.

The northern tier of NE Cedar Rapids and Hiawatha is in a similar

situation. Less than twenty-fi ve acres is zoned and ready for

construction. Given the recent attention that I-380 has received

from national developers and logistics/distribution

companies, lack of available land may retard some

otherwise achievable economic activity.

On the investment side, prices will remain high, a function

of the improving fundamentals.

Signifi cant Events — Industrial• Clipper Windpower blows into town, occupying former

Goss plant

• Amana Maytag facility sold to institutional buyer less

than one year after completion

• Engineered Seal Products expanding

• Alternative fuels momentum bodes well for local growth

for stainless steel manufacturers and ADM

| In

du

str

ial

|

Cedar Rapids New Construction Starts

$14,785,283

$15,685,000

$16,751,346

$54,653,299

20 3326

52

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

2002 2003 2004 2005

Industrial & Warehouse Rent Comparison

NE & SW Quadrants

$3.77

$4.28

$3.60

$4.78

$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00

SW

NE

Industrial

Warehouse

9

Multi-Family RecapThe national fi xation and spotlight on the baby-boomers has

missed a very salient point … the Echo Boom generation

(ie. children of boomers) is moving into marriage and home-

formation, and in record numbers. When this phenomenon is

coupled with higher interest rates and restrained development

activity, it creates an improvement in multi-family market

fundamentals. To point out the obvious, younger members of the

work force will likely rent vs. buy, at least for the near term.

Average rental rates for apartments rebounded favorably in

�005, registering an across the board increase of �%. Improving

cash fl ow was also a function of lower vacancies which had

crept up to 13% in early �005, but has since receded to slightly

above 11%. Though still higher than many comparable U.S.

markets, and nearly double the vacancy numbers at the Johnson

County end of the corridor, occupancy numbers are trending

in the right direction. Sales activity was extremely active, with a

number of large projects exchanging ownership. The 154-unit

Woodcrest complex, for example, sold for $6,000,000, roughly

$38,900 per unit for a project with a preponderance of two

bedroom units. Shadowood, an 84-unit complex on Edgewood

Road also featuring mostly two bedroom units, sold for slightly

over $37,000 per unit. These and other sales translated into cap

rates between 8.5% and 9%, compared to the average cap rate of

9.�9% reported last year.

Multi-Family ForecastOverall price appreciation is likely to continue this year,

although an upward change in interest rates creates an

unusual conundrum. Higher home mortgage rates generally

benefi t apartment owners, yet increased capital costs puts

downward pressure on appreciation. However, revenue

growth is expected to counteract the effects of higher debt

service, and therefore prices will continue a slow, albeit

unspectacular climb. Development activity will remain

modest. It is noteworthy that less

than 100,000 units were built

nationally in �005, with less than

100,000 again projected for �006.

The dominant theme will continue

to be strong buyer demand

and reasonably fl at yields. Private

vs. institutional buyers still accounts

for the vast majority of purchase

activity in Eastern Iowa, including

the aforementioned baby boomers who are seeking relatively

safe income-producing investments prior to retirement. The

uptick in prices is also encouraging the fl ow of 1031-exchange

capital, as some owners are cashing out built-up equity on

other investments and leveraging these dollars into apartment

properties. Overall, the apartment market, after weathering

historically low interest rates and the subsequent single-family

home boom, is in the midst of a recovery.

Multi-Family Average Rental Rates Comparison

377 517 676

375 542 678

344

509

602

610

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1-bedroom 2-bedroom 3-bedroom

2002

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Chapel Ridge Apartments

www.iowacommercial.com

116 Third Street SE

Cedar Rapids, Iowa 52401

319-363-2337

319-365-9833 • fax

220 Ridgeway Ave., Suite 100

Waterloo, Iowa 50701

319-233-9999

319-233-1521 • fax

327 Second Street, Suite 201

Coralville, Iowa 52241

319-354-0989

319-887-6565 • fax

– Individual Memberships –